With the rise of crypto and digital assets, many people want to get into the game and start trading on their own. While trading traditional assets such as stocks and bonds often requires traders to jump through many hoops, trading crypto is easy and simple. However, it is important to remember that trading comes with inherent risks, and traders should not be trading money they cannot afford to lose. Especially while they’re still learning.
In this article, we’ll be providing an overview of how to analyze market trends to forecast where a crypto is going and leverage that knowledge to invest wisely. First, let us distinguish between the two types of analyses: fundamental analysis and technical analysis.
What is Fundamental Analysis?
Fundamental analysis involves looking at the cryptocurrency, the technology it uses, the information released by the company or team behind it, and the company team itself to determine whether it will be a good investment.
While fundamental analysis might not seem to have much of an effect on the actual price at first, traders quickly realize how important it is to understand what a specific crypto is all about and keep their eye on crypto news surrounding the specific project.
Fundamental analysis also involves looking at the crypto market as a whole, including government regulations, competing cryptos, breaking news, and anything else that drives people to buy and sell. That’s why an important component of discovering market trends is to look at the fundamentals and how other factors influence them.
What is Technical Analysis?
Technical analysis involves looking at price charts, volume data, and other statistical information to determine what is happening in real time in the market. This raw data is processed through indicators to produce outputs that traders can analyze.
An important aspect of technical analysis is looking at the history of a market or specific asset and comparing that with current data. Markets tend to follow past trends over time, thus making technical indicators the perfect tools for identifying market trends.
Some common technical indicators are:
- The Candlestick Chart: this is the most basic technical indicator, and it accurately represents the actual buying and selling price movements of the asset. The body of the candle represents the movement of the opening to the closing price, while the wick represents where the price had moved in the set timeframe.
- The Relative Strength Index: this indicator is an oscillating chart that tracks the average price increases and decreases over time to reveal whether the market is “overbought” or “oversold”. If the index is above or below a certain level, the trend of the market may be about to turn.
- The Simple Moving Average: this indicator smooths out price changes over a chosen period to reveal both short and long-term trends. Traders often have two or three SMAs set up to identify whether the market is moving up or down and when to be ready for a reversal.
How To Effectively Analyze Market Trends?
The best way to identify and analyze market trends, even as a beginner, is through a combination of fundamental and technical analysis. It’s often best to start by looking at analyses produced by experienced traders and finding out how they came to their conclusions so others can replicate them yourself. Here’s a quick look at how to analyze market trends:
- First, look at a specific crypto asset and the organization behind it. Look at how past news and announcements have affected prices to anticipate what might happen when news breaks. Also, look at macro-trends for the entire crypto market, especially those affecting Bitcoin since these usually affect all crypto assets.
- Next, analyze the technical side by using indicators to see what the market has done historically and is currently doing. If you’re more of a long-term trader, look at long-term trends, and vice-versa.
- Finally, combine your fundamental analysis with the technical analysis to narrow down whether the market is trending up or down, why it is trending the way it is, and where traders can jump in to make the most of a price change. For those looking to diversify their crypto portfolio, you can easily buy Litecoin with credit card, making it a convenient option for quick and secure transactions.
Conclusion
There is much to discover in crypto trading, and analyzing trends is just the start! The best way to improve at analyzing market trends is practice. Most exchanges offer test or “paper” trading to allow traders to practice without using real money. This way, traders can test their theories and see if they are correct without risking your hard-earned cash.
